Dear CIGAs,

The big question tonight is if Little Buddy is smiling for the picture…

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Jim Sinclair’s Commentary

When a government plan fails, further government and agency programs will be initiated based on the same game plan.

Here we go down that slippery slope of bailing out homeowners without jobs and yesterday’s states without necessary income.

This period will consume as much and more than the first bailout of Wall Street – one trillion or more. Gold will trade $1650 and beyond.

New Treasury/HUD Program Targets Help For Unemployed Homeowners
By: David Dayen Wednesday August 11, 2010 10:15 am

The Treasury Department and the Department of Housing and Urban Development have announced a new foreclosure-prevention program, aimed to provide up to $3 billion dollars between the two agencies for targeted aid to unemployed borrowers.

The Treasury Department will add $2 billion dollars to their “Hardest Hit” fund, specifically providing assistance to jobless Americans struggling to pay their mortgages. HUD will offer a $1 billion dollar “Emergency Homeowners Loan Program” that will give 24 months of assistance to the same class of homeowners, those experiencing unemployment or underemployment or an inability to work because of a medical condition.

The Treasury program is doled out to the states experiencing the highest unemployment, at or above the national average, over a 12-month period. Nineteen states and the District of Columbia are eligible for the funding, but curiously, Arizona, one of the biggest foreclosure states, was left off the list. On a conference call, Assistant Treasury Secretary for Financial Stability Herb Allison said that Arizona’s unemployment rate just missed the cutoff for these funds. The program enables states to assist eligible borrowers to pay their mortgages while they find a new job or undertake job training. Funds range from $7 million for DC to $476 million for California.

HUD’s program seems to be potentially more effective.

The program will work through a variety of state and non-profit entities and will offer a declining balance, deferred payment “bridge loan” (zero percent interest, non-recourse, subordinate loan) for up to $50,000 to assist eligible borrowers with payments on their mortgage principal, interest, mortgage insurance, taxes and hazard insurance for up to 24 months.

No-interest loans makes more sense than interest-only reductions or other attempts with the HAMP program that only end up making borrowers more indebted. HUD has not yet determined which areas of the country will have access to these loans.

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Jim Sinclair’s Commentary

Yes, most unfortunately it is. However, it will take a form very few understand. That form is "Currency Induced Cost Push Inflation."

THIS IS IT is only the second chapter of the singular destruction of Western World finances by their OTC derivative manufacturers and distributors.

Is this finally the economic collapse?
By Keith R. McCullough, contributorAugust 11, 2010: 2:07 PM ET

FORTUNE — The Great Depression. Wall Street in 1987. Japan in 1997. Points of economic collapse are generally crystal clear in the rear-view mirror. Professional politicians in Japan have been telling stories for 20 years as to why they can prevent economic stagnation. In the US, the storytelling started in 2007. All the while, stock market and real-estate prices have repeatedly rallied to lower-highs, then collapsed again, to lower-lows.

Despite the many differences between Japan and the US, there is one similarity that continues to matter most in the risk management model my colleagues and I use at Hedgeye, our research firm — debt as a percentage of GDP. Now that the US can’t cut interest rates any lower, the only option left on the table is what the Fed just announced it would start doing — buying Treasury debt. And that could lead the country to the brink of collapse: According to economists Carmen Reinhart & Ken Rogoff, whose views we share, crossing the 90% debt/GDP threshold is the equivalent of crossing the proverbial Rubicon of economic growth. It’s a point from which it’s almost impossible to return.

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Jim Sinclair’s Commentary

Here is a song from Bill Carleton’s album, Squeeze the People, titled Banksters & Co. Now Hiring

Jim Sinclair’s Commentary

On Bloomberg today, Professor Kotlikoff spoke on the bankruptcy of the US. Randall Kroszner, a former member of the Fed Board was introduced in all probability to give the other side of the story. Actually he didn’t, but in his words said the same thing.

The key point was that inflation is the inescapable result of creating money to the degree already done and to the degree forthcoming.

The name of this type of inflation is Currency Induced Cost Push Inflation.

Laurence J. Kotlikoff is Professor of Economics at Boston University. One of the nation’s leading experts on fiscal policy, national saving, and personal finance, Kotlikoff is the author of Essays on Savings, Bequests, Altruism, and Life-Cycle Planning (2001), Generational Policy (2003), The Coming Generational Storm (2004), all published by The MIT Press, and other books.

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Jim Sinclair’s Commentary

Do you need more evidence of what is coming?

How do you help one state and not the other? If you fund California and Illinois how do you tell New York to take a long leap off a short dock?

This is the slipperiest of slippery slopes that we are now embarking on.

House gives needy states $26 billion for Medicaid, teachers
By Tami Luhby, senior writer
August 10, 2010: 3:34 PM ET

NEW YORK (CNNMoney.com) — Cash-strapped states are one signature away from getting $26 billion in federal funds to shore up their budgets.

The House voted 247-161 Tuesday, with support from the Democrats and overwhelming rejection from the Republicans, to send $16.1 billion in additional Medicaid money and $10 billion to prevent layoffs of teachers and first responders. In an unusual move, representatives returned from their August recess to approve the measure…

President Obama, who urged lawmakers to pass the bill, signed it later Tuesday.

Speaking from the Rose Garden earlier in the day, the president said the bill will "save hundreds of thousands of additional jobs in the coming year." He added that it will not add to the nation’s deficit because it "is fully paid for, in part by closing tax loopholes that encourage corporations to ship American jobs overseas."

Speaker Nancy Pelosi, D-Ca., flanked by several teachers and PTA members during a press conference following the vote, called the measure "good news for children," as it saves over 300,000 jobs that are provide education and safer communities.

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Jim Sinclair’s Commentary

States need not waste time testing. Even the sleeping Sheeple will wake up on this red herring. Pension funds have been the wastebaskets of Wall Street for years.

States test whether public pension benefits given can be taken away
By Stephen C. Fehr, Stateline Staff Writer
Tuesday, August 10, 2010

State legislators are beginning to challenge one of the ironclad tenets of public pension policy: that states cannot legally reduce pension benefits for current and future retirees.

Lawmakers in Colorado, Minnesota and South Dakota voted earlier this year to limit cost-of-living increases they previously had promised to thousands of current and future retirees, who courts historically have protected from benefit reductions. Not surprisingly, retirees in each state have filed lawsuits asking judges to restore their annual benefit increases to what they were previously.

Lawmakers, state retirement systems, public employee unions and others in the pension policy arena are closely watching the outcome of the legal challenges. If the courts do not reinstate the retirees’ benefits, a flood of states could follow the lead of Colorado, Minnesota and South Dakota. The reverse also would be true. “If the plaintiffs are successful, it may discourage legislators in other states from attempting to diminish benefits,” says Keith Brainard, research director at the National Association of State Retirement Administrators.

California Governor Arnold Schwarzenegger and New Jersey Governor Chris Christie, among other officials, favor scaling back pension benefits already promised to current employees and retirees. And a  lively debate on the issue is underway in Illinois, where lawmakers reduced the cost-of-living adjustment for newly hired workers. Interest is keen everywhere: Lawmakers from around the country packed a session on modifying public pension benefits at the recent annual meeting of the National Conference of State Legislatures in Louisville.

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Jim Sinclair’s Commentary

Countries do not go broke. Countries do not fail on their debt. Countries simply restructure their debts, declaring that to be the end of their problems.

What countries do is deck their currencies as a public company doing the same would deck their share values.

On a significant basis the result is "Currency Induced Cost Push Inflation."

U.S. Is Bankrupt and We Don’t Even Know: Laurence Kotlikoff
By Laurence Kotlikoff – Aug 10, 2010 6:00 PM MT

Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.

What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.

Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.

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Jim Sinclair’s Commentary

The final Pillar in gold lies within the condition of longer term government bonds.

Taleb Says Government Bonds to Collapse, Avoid Stocks
August 11, 2010, 10:25 AM EDT
By Renee Bonorchis

(Adds context in third paragraph and Taleb comment in fourth.)

Aug. 11 (Bloomberg) — Nassim Nicholas Taleb, who warned that unforeseen events can roil markets in “The Black Swan,” said he is “betting on the collapse of government bonds” and that investors should avoid stocks.

“I’m very pessimistic,” he said at the Discovery Invest Leadership Summit in Johannesburg today. “By staying in cash or hedging against inflation, you won’t regret it in two years.”

Treasuries have rallied amid speculation the global economic recovery is faltering, driving yields on two-year notes to a record low of 0.4892 percent today. The Federal Reserve yesterday reversed plans to exit from monetary stimulus and decided to keep its bond holdings level to support an economic recovery it described as weaker than anticipated. The Standard & Poor’s 500 Index retreated 16 percent between April 23 and July 2, the biggest slump during the bull market.

The financial system is riskier that it was than before the 2008 crisis that led the U.S. economy to the worst contraction since the Great Depression, Taleb said.

In February, he told a conference in Moscow that “every single human being” should bet U.S. Treasury bonds will decline. It’s “a no brainer” to sell short the debt, he added. Since then, 2- and 10-year notes have rallied.

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